Tuesday, December 15, 2009

Bernanke Responds

Before Ben Bernanke's hearing in front of the Senate Banking Committee on December 3, I posted this list of 15 questions for him. I've learned that after the hearing, Senator Bunning submitted most of them in writing to Bernanke. For Bernanke's responses, open the PDF file at the bottom of this page on Senator Bunning's website. In addition to my questions, the senator asked many of his own, and the entire document is worth reading. Bunning has been extremely impressive on monetary issues, and he's played an important role in the effort to bring reform and increased accountability to the Fed.

For readers curious about Bernanke's responses to my questions, open the PDF file and scroll down to:

Bunning's question 38, which is my question 2 (Bernanke's May 2009 prediction about the unemployment rate).

Those who have long been curious about Fed intervention in the stock market should read Bernanke's notably terse and careful reply to Bunning's question 50/my question 15. I believe this is the first time a sitting or former Fed chairman has been asked this question directly. I purposely phrased it to leave as little wiggle room as possible in the answer, but Bernanke still managed to not respond fully. This is important. More on this soon, as well as comments on his other responses.

7 Comments:

Anonymous said...

Since I was working with the staffer who submitted the questions, may I ask your opinion re the legality of the Fed's purchase of FNM/FRE paper? Here's the question and Ben's response. Link at bottom says no. I also post as rutben but cannot seem to use Google ID correctly. You can email me at rutben@hotmail.com. I was also involved in the first protest on wall street almost two years ago and forwarded you the video/photos. thanks.

28. In response to a question posed by Senator Corker, you stated “On the mortgagebacked securities, we have a longstanding authorization to do that. I do not think there is any legal issue.” Please provide the Fed’s legal analysis on the authority to purchase such securities, particularly those issued by Fannie Mae and Freddie Mac, which are not fullfaith-and-credit obligations of the United States.

Section 14(b)(2) of the Federal Reserve Act (12 U.S.C. 355) authorizes the Federal Reserve Banks, under the direction of the FOMC, to “buy and sell in the open market any obligation which is a direct obligation of, or fully guaranteed as to principal and interest by, any agency of the United States.” The Board’s Regulation A (12 CFR 201) has long defined the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the Government National Mortgage Association (Ginnie Mae) as agencies of the United States for purposes of this paragraph. All mortgage-backed securities (MBS) acquired by the Federal Reserve in its open market operations are fully guaranteed as to principal and interest by Fannie Mae, Freddie Mac, and Ginnie Mae.